Reference no: EM132859616

Henderson Furniture sells reproductions of 18th century furniture.

For a particular table, management would like to find the optimal solution for a backorder inventory policy. Demand is constant at a rate of 200 tables per year, the holding cost is $150 per table in inventory per year, the ordering cost is $80 per order, and the cost of having a unit on backorder is estimated to be $50 per table per year. The store is open 250 days a year.

a. Without doing any calculations for this part of the question, what can you say about the total yearly cost associated with this backorder policy compared with a policy that does not permit backorders? Explain briefly.

b. What is the optimal order quantity (fractional quantities ok)?

c. How many tables short will Henderson be when an order arrives?

d. If it takes 5 days from the time an order is placed until it arrives, what is the reorder point? Explain briefly.